After delivering an epic guest post on the tax advantages of investing in real estate, I asked Chad Carson from CoachCarson.com to join me on the podcast to hear more about his own experiences with real estate investing.
Chad started with only $1,000 in the bank and was able to build up a real estate empire that now consists of over 90 units!
It’s an incredible story of hard work, intelligent money management, and perseverance so listen to find out how he did it. And if you’ve ever wanted to know what it felt like to be a full-time real estate investor when the entire housing market collapsed in 2008, hear how Chad survived despite making over 50 acquisitions in 2007 alone!
Note: In the intro to this episode, I mention that the 2017 Ecuador Chautauqua is open for booking but the week that I’m attending (Oct. 7-14) actually sold out before I could even get this episode published! Luckily, there are still a few tickets available for the UK Chautauqua so if you’re interested in attending, book now before it sells out too!
- How to get started in real estate with no money
- What the hell is ‘bird dogging’?
- Why you should invest in something that’s simple and understandable
- The numerous ways to finance real estate purchases
- What it was like to survive the financial crisis as a real estate investor after making 50+ acquisitions in 2007
- The importance of having a cash reserve
- Why you should house hack or do a live-in flip if you want to retire early
- What Chad would do if he was starting again and wanted to reach financial independence as quickly as possible
- Why you need to be cautious when considering passive real estate investing options
- How buying real estate to live in is much different than buying real estate as an investment
- Coach Carson Web/Email/Twitter/Facebook
- Building Wealth One House at a Time
- How to Retire Rich With Ugly Houses & Embarrassing Old Cars
- Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel
- Leave a review for the Financial Independence Podcast on iTunes (thanks!)
Getting Started with Real Estate
- Real Estate Investing Toolkit
- The 35 Best Niches For Real Estate Investing (& How to Choose Yours)
- The Best Real Estate Strategies For Early Retirement
Use Your Residence as an Investment
- Live-In House Flips – A Plan To Own Your Home Free & Clear in 6 Years
- Getting Rich With Live-In House Flip
- How to Hack Your Housing and Get Paid to Live For Free
The Keep-it-Simple Plan
Early Retirement/Ecuador Trip
You’ll be familiar with my guest today if you read my last article. It’s Chad Carson from CoachCarson.com. Chad was kind enough to publish an incredible guest post on my site, all about the tax optimization strategies when investing in real estate.
It’s a phenomenal article, and it’s an article I was hoping to write over the past few years. But since I didn’t have the expertise to do it, since I’m not a real estate investor, I wasn’t able to.
So when Chad came along and offered to write it for me, I took him up on the offer, and I couldn’t be more pleased with it.
So if you haven’t checked it out yet, head over to the blog, and check out the most recent article, and I will also link to it in the show notes of this post, in case you’re listening to this far in the future.
But once Chad delivered his post to me, I knew I had to get him on the show to talk to him about his own story, and how we was able to accumulate 90-plus rental units with his partner, and how he got started, and what he learned along the way.
So I wanted to get him on the program because he and his family just moved to Ecuador for the year. And that seems like quite an adventure. They have two small children, and they just uprooted their entire lives, and just landed this past week in Ecuador. And that’s where they’re going to be for the year. It seems like it’s going to be a really cool experience. So I wanted to dive into that as well.
Speaking of Ecuador, the Chautauqua has just opened for booking this week. So if you’re listening to this near the release date, there should hopefully still be some slots left.
So, if you’re interested in joining us down in Ecuador for a week, definitely head over to AbovetheCloudsRetreats.com. It’s AbovetheCloudsRetreats.com and see if there are any tickets left.
I’m pretty sure I just talked to Chad into going, so if you like this interview and wanted to chat more with Chad, hopefully, he’s going to be there too since it’s only going to be a short flight away for him, since he’s living down there this year.
I’m excited to dive in, so Chad, thanks a lot for being here. I appreciate it.
Chad Carson: Yes, I’m glad to be here, Brian. Thanks for having me.
Mad Fientist: So before we dive into all this good stuff, I just realized something today. I may have actually watched you play football. For the people that don’t know, you actually played college football for Clemson. Is that right?
Chad Carson: That’s right. I feel like it was ages ago now because I played football in 1998 through 2001 or so. But yes, I was actually a middle linebacker […] I was about 48 lbs. bigger when I played. I had a big neck and I was kind of a muscle man-looking guy.
Mad Fientist: That’s awesome.
Chad Carson: That was another lifetime ago.
Mad Fientist: That’s really cool. So I went to UNC Chapel Hill. My buddy went to Clemson. I actually came down to Clemson to watch your football game one time. I was in college from 2000 to 2004, and I’m thinking that I possibly went down there in 2001 to watch that game. It’s possible I watched you play football which is pretty crazy.
Chad Carson: That’s pretty cool. Yes, Chapel Hill. I love Chapel Hill too. It was actually one of the schools I looked at going to when I was going to college, but they didn’t offer me a football scholarship and Clemson did. So that swayed my decision-making.
Mad Fientist: For people in the audience that aren’t familiar with you, can you just tell a little bit about yourself, and tell a little bit about CoachCarson.com?
Chad Carson: Sure, yeah. My hometown is in Clemson, in South Carolina, the same place where the university is. Since I’ve graduated from college, actually, I’ve been a full-time entrepreneur. I had the decision matrix of going to like—I was a biology major in college, and I was leaning towards medical school, and I was actually applying to medical schools. I also thought about going to the NFL, but […] that fell off the cliff at the end.
Right before I went to NFL, I had a bad senior year. Our team was bad, and it just didn’t work out, which is probably for the better, given concussions and things like that in the NFL.
My third choice was I went into entrepreneurship as a real estate entrepreneur, meaning I figured out how to start buying and selling houses and finding good deals on real estate.
I thought it would be a short-term thing. I would just figure out how to do that and then I’ll get a real job after that. But about 15 years later since I started that, I’m still rolling with it. And that transitioned from being just buying and selling properties just to make a living and putting food on the table, it transitioned into also being a real estate investor where I bought rental properties and notes.
I’ve pretty much done it all, in terms of residential real estate since that time.
So, that’s been my business finance story. Other than that, personally, my wife and I like to travel a lot and learn foreign languages. My wife is a Spanish teacher, and so I picked up Spanish, learned Spanish, and took German in college. So that’s our hobby—it’s to learn new languages, travel, and do things like that.
Mad Fientist: You’re speaking to us from Cuenca, Ecuador.
Chad Carson: Exactly, yes. You caught me at a time, at a cusp of a big, new transition in our lives. We’re going to Ecuador for a year. We’re living here with two daughters, a three-year-old and a five-year-old daughter. They’re going to go to school here locally like a local elementary school. Hopefully, they’ll become fluent and speak Spanish here which is something we’ve been planning for a while.
We could talk about how that happened maybe. It’s been a year in the making when we actually uprooted ourselves, get out of town and go to this trip to Ecuador. But it’s a cool, big moment for us in our lives.
Mad Fientist: I know! And I appreciate you taking the time to talk with me because you literally just got to Ecuador in this last week. Is that right?
Chad Carson: Exactly, yes. We’re getting over jetlag and we’re at 8500 ft. altitude. We’re like walking zombies for a couple of days. But I think we’re finally on the up-and-up now.
Mad Fientist: Cool! We’ll definitely talk about that. I definitely want to hear that story of how you made that move and how you made that decision to do that.
But let’s get back in the day. How did you pick real estate? How did that decision come about?
Chad Carson: I was fortunate enough. My father owned rental properties. My mom was a dentist and my father is an entrepreneur. I sort of just observed it that way. I never thought I wanted to get into rental properties because when I was in middle school, my dad would, in the summers […] in Georgia—super hot summers. My dad would buy these houses at foreclosure sales or something. And typically, when that happens, somebody abandons the house. So their refrigerators are full of food and meat. He’d drop us off and say, “Hey, boys. Go ahead and clean up this refrigerator. I’ll be back in an hour or two.”
It was nasty old refrigerators, and houses with clothes piled everywhere and rats running out the back door because it’s been abandoned six months ago. I was like, “This is ridiculous. Who in the world would ever want to buy anything like this or do anything like this?”
So, we kind of hated real estate just because of the personal experience of nasty houses. But after I got out of college, when I was sort of in that decision time, just thinking about what I wanted to do, it popped back in my mind. I was like, “Wow, my dad was a pretty smart guy, doing some of that.”
And so I started picking his brain and asking about it. He had some books on his shelf, and so I just started reading some books about it and thought I would give it a go. Just try it out for myself.
Mad Fientist: That’s fantastic. Quick aside, did you have air conditioning in Clemson? When I was at UNC for freshman/sophomore year in the dorms, we didn’t have air conditioning.
And like you said, it was ridiculously hot in the summer. And it’s still ridiculously hot in August and September when you’re moving in, and having your first two months of classes.
So did you guys have air-conditioning down south?
Chad Carson: I think we have one thermostat in a five-story building. And I think the thermostat was in the basement. So the first time I went to the basement, I was like, “Man, it’s cold in here.”
If you’re in the third floor, it’ll be like 90° and sweating. I don’t know. Maybe that was part of the hazing of freshmen or something. I’m with you. It was totally hot all the time.
Mad Fientist: So nasty, yeah. That was terrible.
Anyway, you graduated in 2003. And I think you said you had $1000 in the bank at the time. So how did you start your real estate career from having a grand in the bank?
Chad Carson: I was fortunate. I had about $1000 rather early in my bank account. And I owned a car free and clear when I got in high school. I didn’t have any debt on that. I was also fortunate I didn’t have any college debt because I played football, and that paid for my school.
So, I was in the position where I didn’t have a lot of—I think that was really the thing that pointed me towards being an entrepreneur because I think that if I would’ve had $40,000 in debt, I would be more inclined to go get a job that paid me some money that I could actually use to make those payments.
Because I didn’t, I felt really free to be able to make different choices.
The choice I made to just start a business—I had a friend who also wanted to get into real estate. And so, the two of us talked about it. And his father had been in real estate too. I actually got my start just by bird-dogging houses.
So, I didn’t have any money and I didn’t really know the business. I read somewhere that the idea was finding an experienced investor and trying to figure out a way to bring good leads and deals to them.
So, I might walk around the neighborhood and just see “for sale by owner” houses or find a vacant house in the neighborhood. I’m going to knock on the door of the neighbors and say, “Hey, do you know anything about this vacant house? Who owns it? Why is it vacant?”
All I had was energy and time. I really didn’t know anything. And so I would just knock on the door.
If you knock on 10 doors of 10 vacant houses, you might find a couple where they say, “Yes, so and so moved out of town for a new job, and they’re just making payments on this house. They’re probably just going to get rid of it.” And so I would find those stories.
And then, I didn’t know what to offer on the house. It turns out, my father was the one I ended up buying houses for the first year I was in business. And so I would bring that lead to him and say, “Hey, what would you offer for this house?” And then he would buy the house, and I’d make a small mark-up on it or something—a couple thousand bucks—every time he bought a deal.
And so that’s how I learned the business and saved a little bit of money.
And then, my second year in business, my friend from college and I decided to do it on our own. And so, I moved back […] to Clemson, South Carolina. And we started doing the same thing.
We would find deals, and then we went to other individuals. I didn’t have a job, so I really wasn’t bankable to be able to go and get a regular loan. And so I would just find other people who had money or had the credit. And then we would partner on the deal.
I would find the deal, they put up the credit or the money, and then we’d split the profit somehow when we sold it.
And it was as simple as that. As long as I could find a good deal, […] And then I’d save the money up. Eventually, I started using our own money to do some deals as well in addition to that.
Mad Fientist: That’s amazing. That’s called bird-dogging?
Chad Carson: Yes. The first year when I first started, I was just bird-dogging. That’s a southern term […] When people go hunting for birds or something, they’ll bring a dog who will point out where the birds are in the bush. And so the dog will point to it and say, “There’s the bird.” That’s all the dog does. The dog can’t get the birds.
So, that’s pretty much what I was. You just sniff out good deals. It’s really handy though because I learned how to find good deals. And that’s one of the most important parts of real estate, being able to evaluate and find these diamonds in the rough because there are a lot of properties that aren’t good deals. You’ve got to figure out a way to sniff them out and figure out where those ones that you can actually make a profit on are.
Mad Fientist: So, what did you learn over those years, just the fact that you need to really hit the streets, and start talking to people, and form relationships? Was it the relationships that was the most important thing? Or was it just the hustle?
Chad Carson: I think it was both. I think you hit the nail on the head.
First of all, hustle. I can’t tell you how awful I probably was when I first started. Think about the disadvantages. You’re 23 years old. I’ve never even owned my own house. I’m living in the spare bedroom of my business partner. And so I really had nothing and no experience.
And so what do you bring to the table when you’re talking to people about buying their house? There’s a couple or a retiree or somebody who owns this property, and they’re going to try to sell it to you. And so what do you have other than hustle and sincerity?
When I first started—and this really applies to any business—I would just say, “You know what? I’m brand new, but I do know people who have money to buy properties like this. If you’d give me a chance, I’d like to make you an offer to buy it.”
It was as simple as that. You’re just honest about it, and you hustle. And then the relationship part—just like what you said, you have to have relationship. It’s like a puzzle. You have people who have money, you have people who have their property, and you’re the hustler in between. You’re just trying to bring these people together. If you can arrange it the right way, you can find a way to make a profit doing that.
You could really get complicated with real estate, but it really comes down to properties and money. And so if you’re doing the business yourself, if you’re just buying a rental property on the side, you might be going and getting a loan yourself, and then you’re going to have to go find the property. But you might hire a real estate agent to help you find the deal or you might find a bird-dog like me. Find a young college grad and say, “Hey, go bird-dog some houses for me. I’ve got money. Go find me a deal.”
Mad Fientist: That’s fantastic. So you focused on residential real estate. I’ve read on, I think it was Bigger Pockets, whenever you’re guest posting on Bigger Pockets, just promoting residential real estate because you said it’s simple and understandable. You live somewhere, and you know what you like about where you live, so it makes sense that other people like those things as well.
It seems like you’re happy that you fell into residential real estate. But it sounds like you got into it just because that’s what you’re walking around and seeing. Is that how it worked?
Chad Carson: Yes. I’m a big fan of Warren Buffet. You probably read some of his stuff too.
I like one of his maxims for investing was to always invest in something that’s simple and understandable. That transitions perfectly to real estate because there’s a huge universe of real estate properties. You could buy skyscrapers in Downtown Manhattan—that’s real estate—or you could buy a piece of land out in the country or you could buy mobile homes or single family houses or apartment buildings.
But really, if it comes down to it—I read a book that you might want to link to in the show notes called Building Wealth One House at a Time by John Schaub. It’s the book I always recommend to people when they start because the point is—
He’s bought all sorts of properties, and I have too, but single family houses, when you come down to it, are the simple and understandable parts of real estate. They’re simple because there are lots and lots of people who need to live in them whether they’re renters or buyers. And they’re understandable because most of us have lived in a house. We know the things that make a house good or bad or a neighborhood good or bad.
When I first started bird-dogging, it wasn’t like you had to read a book to understand that this neighborhood is a little bit sketchy, and you need a gun to walk around this neighborhood at the end of the day. “Alright, I don’t think I’m going to buy in that neighborhood.”
Or you go to another neighborhood, it’s trendy, and there are people who are remodeling houses, you get the feel that there’s a buzz and excitement in that neighborhood.
And that’s as intuitive as it is. If you shopped for houses renting or gone on AirB&B to shop around, you understand the fundamental part of real estate, which is it’s got to be a good location, it’s close to parks, it’s close to public transportation, or if you’re in a more suburban setting, good […] neighborhood that’s in a good school district. It’s safe. It’s got nice amenities.
And so really, you don’t have to learn a whole lot in terms of the principles of real estate. The thing that might not be as intuitive is going back to the other side—the money, the finance. That’s a little bit more complicated. But you can keep that simple too.
I know people who paid cash for every single real estate property they buy, and that’s pretty simple. “The property is $100,000. Do I have $100,000 or do I not?”
And so, you’ve got to keep the whole business super, super simple, or you can make it more complicated if you want to and there are advantages to that as well.
That’s one of the main things I like about real estate. I didn’t have to go learn how to read a stock and analyze a report about this certain company. I didn’t have to figure things out. As a business, I could get into it pretty quickly, and be up and running within six months, being a semi-expert on my little niche within my market.
Mad Fientist: That’s really cool. And you said, obviously, residential real estate is understandable and simple, but you can complicate it quite easily with financing.
So do you want to talk about a little bit about all the things you’ve gotten into? At the beginning of the show, you said that you’ve done every sort of residential real estate deal possible. So could you talk a little bit about wholesaling and all these other things that people may have heard about?
Chad Carson: Sure! There are different niches that you hear about in real estate. The niches are either in the property type. It’s a single family or multi-unit building. That’s one way you can divide the universe.
The other way is the types of deals you do depending on the financing. If you have this single family house, it’s $100,000, maybe that number is too low. For somebody in San Francisco, it might be a million dollar for a single family house. And you have to come up with the money somehow to buy that house.
So, really, the question is: “Who is going to come up with the money?”
The simplest scenario is, “I’ve got $100,000 in the bank. I’m going to be the person that puts up the money.” That’s super simple.
On the other end of the spectrum, when I first started, again, $1000 in the bank, how do you buy a property? You’ve got to use some sort of leverage.
There are a lot of different kinds of leverage. The most common kind I think most people are familiar with, go get a mortgage at the bank. And so you can put 20% down, get a conventional mortgage if you can qualify for that. And it’s a good loan, 30-year fix, […] these days. That’s your standard leverage.
But that’s not the only way to do it. I was unlucky (and lucky) in that I started and I couldn’t go get a conventional mortgage because I didn’t have a W-2 income—meaning I didn’t have a regular salary. Banks giving you loans want to have a regular salary. That’s a lower risk profile.
I was basically unemployed, so how do I buy properties and find the money?
So, what I did was go to alternative sources of financing. And all that was I had to find an individual who had the money.
The individuals I typically used to put up the money was—the first one I found was a professor at Clemson. I took some classes for fun. He was a business professor. He happened to have some money in a self-directed IRA account. So he had his retirement money. There’s a little niche within the retirement community where you can actually make loans on real estate.
He had $100,000 in the bank, I found a good deal, he understood real estate. He knew that this $100,000 property that I was buying was worth $150,000, so he might say, “All right, Chad, here’s what we’ll do. I will loan you the $100,000 to buy this property. My IRA will loan you the money. And then we’ll figure out a way to split it on the backend.”
And so, the simple scenario might be that I pay him 50% of the profit, and I get 50% of the profit. That will be a venture capital deal.
But then, what I evolved to over the years was paying that same lender, just paying them interest just like I would a bank.
When I first started, I paid all my investors 10% interest. I would borrow money from them for six months. Let’s say, the $150,000 house that I bought for $100,000, I will borrow $100,000 for six months at 10% interest. And so $5000 would be my cost of money.
But when I sell the property, I might make $20,000 or $30,000. That was just the cost of doing business for me at that time.
Mad Fientist: That’s really interesting stuff. So let’s go back to your progression. Bird-dogging led to you getting your own property. And then did you flip that property in that manner you just described where you’d take on a short-term loan, and then fix it up, sell it, make the profit, and then pay back the interest?
Chad Carson: Exactly! So my bread and butter for several years was just buy/fix up/sell, buy/fix up/sell. You mentioned the wholesaling. Instead of fixing it up, just like wholesalers for any other product, I would just make a small mark-up.
So, instead of me making $30,000 on a house and fixing it up all the way, and selling it to an end customer, I might take that $100,000 house and sell it to a rental property investor who just wanted to keep it as a rental.
I might sell it to them for $105,000 or $110,000. You just make some quick money like that.
So, that’s one distinction. You can wholesale the property, you can retail the property. If you’re flipping properties, that’s one whole business model of real estate—flipping houses.
But then my progression was, at some point, I didn’t want to just have a job. Probably a lot of your listeners started reading books about financial independence, and how, at some point, you need to build wealth.
And in real estate, a lot of the focus is on passive income. You want to have income coming in, so that you don’t have to flip another house with your money. You actually have some money coming in every single month.
And so really, the natural progression was to start buying rental properties.
And so that was the next step-up for us. After we had saved a little bit of money, and learned how to flip some houses, we also started—we might flip two houses, and find one that we could keep. That was our next step.
Mad Fientist: So, how many years into your real estate journey was this, do you think, that you started actually keeping some of the properties?
Chad Carson: I think it was about two and a half or three years into it.
Mad Fientist: So you guys really hustled to build a bit of a nest egg to invest.
Chad Carson: Yes. I think some of the principles that you talk a lot about like living frugally, and saving your money—I really lived in a spare bedroom of my business partner. He had a house. It was just sitting there with storage. I said, “Hey, can I sleep on that bed over there in your house?” He’s like, “Okay, I guess that’s fine.”
My business partner and I kept our overhead super, super low. You might flip a few houses and make a bunch of money for the first six months of the year. The second six months, you might not make any money or the deal might go bad.
And so I think the progression was, those first three years, we got really good at keeping our expenses low, living cheap. That way, when we didn’t make money, all that cash just went in the bank, and we were able to save that money.
And they gave us a nest egg or reserve fund which is really important with real estate or any business. Have a good reserve fund before you start owning rental properties.
Rental properties are wonderful for building wealth, especially if you buy leveraged rental properties. They’re not going to produce a lot of income on the front-end—at least not consistently because you might make $200 a month on a rental property, but then what happens if a year and a half from now, the heating and the air system goes out on that rental property? That’s a $4000 to $5000 hit. And so it takes a lot of $200 a month to make up for that kind of hit.
And so really, the rental property game, as opposed to flipping properties, is all about generating big chunks of cash that you can use to pay your bills, and hopefully, to save money.
Basically, my job was flipping houses. But then, the wealth-building came in when I started using a chunk of that money that we had flipped and investing that as a down payment or a reserve fund for a rental property.
In my mind, the game of rental properties is eventually getting it free and clear of debt, so that you have a very low risk, high income investment that allows you to go to Ecuador and do whatever else you’re going to do with your life—leave your job or have a little independence to do other things.
Mad Fientist: Right, absolutely! So you’re flipping a couple of houses a year, and you’re now starting to accumulate these rentals as investments. Over time, these rentals are going to start being able to pay for houses themselves and things like that.
What was the progression? Did you just start slowing down on your flipping? As you said, it was your job. Slowly, you just transitioned into just managing these rentals as an investor? Now, you own over 50 properties. So what was the transition? How long did it take to accumulate all this?
Chad Carson: I wish the progression would have been nice, even curve on a graph. But unfortunately, real estate markets and financial markets happen.
Just to give everybody a context, I started buying houses—I learned the business the start of 2003. And we really started growing in 2004, 2005, 2006. Anybody who knows the financial story can see that coming—2007, 2008. What happened then? You’ve got a global financial meltdown led by the US real estate market, which we were in. And so it’s amazing for me to think about it now.
But in 2007, right before everything hit the fan, we had 50 closings that year where we acquired 50 deals, 50 properties.
Mad Fientist: You did 50 deals in 2007?
Chad Carson: Fifty deals. That was acquisitions. We sold some other ones. We were really, really ramping up in 2007.
And so, the story is, a lot of those, we flipped. We had some deals that we made $60,000 on, these $300,000 that we bought, fixed and flipped. They were huge chunks of cashflow. Then we had other properties. We were getting into rental properties at this point too.
And going back to the financing part of the story, I still was a little bit leery about getting bank loans even though we had a couple of years of history. So, most of our rental properties, instead of going to the banks and getting the loans, […] like the guy I told you about, we had a private investor. We might pay them 6% interest instead of 10% because we’ve been going steady for 5 years or 10 years.
So, we started buying it with private investors, or we started buying those properties with self-financing where I would go to a motivated seller who was a landlord who’d owned the property for 30 years, he kind of let the property run down and he couldn’t get any good tenants anymore. I would make him an offer to pay him $10,000 down cash if he would finance the balance of the property to me at $500 a month or something.
And so, the positive side of that […] were most of the deals were bought with private money. They have longer term balloons on them or longer term buy-outs, so we didn’t have a lot of loans coming due 2008, 2009, 2010. And that’s where most of the people who had a really tough time was hit—when they had to pay off loans when they couldn’t get a loan from anybody else.
So, what we did, we went through it because out of those 50 properties we bought, maybe 90% were really good deals, but then 10% were horrible deals where I bought in the wrong location or they had negative cash flow or we had to spend $20,000 more in repairs than we thought we were going to spend.
It probably took—I’d say 2007, 2010 or 2011, where we had to sell off some bad properties, we had to figure things out, and just eat off of our reserves, to be honest, on some of those, because we weren’t just making a lot of money flipping properties at that point.
And so, I go back to the frugality, the fact that we were super frugal, we can live off $20,000 a year or something, made it a lot easier to go through the downturn and to make it through.
And by the time, 2012, 2013 came around, we had sold off some of the bad stuff, and made it through it. And flipping houses is a little bit easier at that point. And so, we got back into the progression of climbing like we were before.
We’re in 2016/2017 now, so that was three or four year ago. And it’s back to the point where we’ve been able to clean up our portfolio. We actually have about 90 units right now. We just bought a bunch last year that were just good deals.
We’re and better-positioned with our portfolio, our debt portfolio where we paid down some properties, we paid off some properties. And the ones we’ve kept, we have longer term, low interest financing that […] cash flow really well. We don’t mind keeping some of that leverage on the property. It’s just a hedge long-term for inflation and other things.
Mad Fientist: That’s an amazing story. Was it ridiculously stressful? I can’t even imagine doing 50+ buying deals and let alone however many other deals you were doing that year when all of that stuff was going on. Was it just insane?
Chad Carson: Yes. I got too good at buying properties. People call me left and right. I was just making offers and people were buying.
So yes, I think it got stressful at the end of the year when my business partner, he’s probably the smarter guy than me, he was like, “We need to slow down a little bit.” And I said, “Yes, you’re right. We need to slow down.” We just sold what we had.
And I don’t know. We weren’t smart or anything in terms of seeing the future. But when you’re in the business, you can notice things. It’s harder. The houses take longer to sell, things are happening. You can at least get a three or six months headway on what things are coming down the pipe. And so we saw that, and we kept on saving more money.
I think the thing that I learned as much as anything is the resilience and adaptability that we have as entrepreneurs. When you’re an entrepreneur, […] And so when things are going well, people are going to pat you on the back and say, “Hey, you’re great.” When things are going poorly, they’re going say, “Hey, you suck,” either way.
And so, it forces a little bit of responsibility to yourself to where you go back to hustle.
Right when I started, I had to hustle just to put some food on the table. In 2008, you can complain about it, and fight it, and resist it, or you can just say, “You know what? I’m going to hustle to make this work because that’s what I got to do.”
And so, we just hustled a lot. We worked really hard to sell some of the properties that we had that weren’t that good a deal.
We had tenants in a lot of these properties, and we would go talk to the tenants and say, “Hey, do you want to buy a property? Do you want to buy this house instead of rent it?” And some of them would say, “Yes, but my credit is not any good.” And so I would help them and coach them along on how to pay off this debt, or this thing.
I found that no matter what you’re up against, it’s given me some confidence to know that as an entrepreneur, and in real estate in particular, a lot of your success depends on your own ability to build relationships, to hustle, and to learn, and to get better.
That might be why real estate might be for some people, and it might not be for other people. If that thing totally scares you, and you say, “That’s crazy! I never want to get into that all,” there are plenty of other alternatives like Jim Collins […] Do that. Do something else.
If you’re making a bunch of money in your job, and you just don’t want to get into this, fine. But if you’re somebody who wants a little bit more control over your destiny, and you have some fun, you love challenging yourself to see, “What can I do, buying a couple of rental properties on the side to see if I’m up for it if I can meet the challenge of buying a property, and financing it, and making some really good returns in the process,” that’s I think the profile of people who are more attracted to real estate.
Mad Fientist: That’s really cool. And don’t lose your frugal roots because I am sure there are lots of real estate investors with similar portfolios, similar skills, who probably—I imagine you’re making pretty good money at that time if you’re doing that many deals in a year. They probably bought themselves a huge house and a fancy car. And then 2008 happened, and then their whole business and their whole lives were flushed down the toilet.
But you guys, luckily, didn’t have that happen.
Chad Carson: It’s amazing. It really does come down to—when I look in the rearview mirror to look at how we made it through it, the fact that we lived super frugal is number one—both when we were making money and when we weren’t making money, both at the same time.
I just kept on driving my Toyota Camry that I had in high school. And it wasn’t an issue for me. There were other investors that were doing a lot better than we were actually, and making more money, who bought a bigger house, a bigger car. You get caught up in it.
They also were more aggressive with their financing. They were using like more commercial loans. They had short-term balloons. They were just getting well and beyond their capacity to handle what they had financially.
And so that was a big lesson for us too, that you’ve always got to have reserves, no matter what business you’re in because you can’t predict exactly how things are going to go. You’ve just got to build some big cash, money on the side, just to make sure you can withstand the uncertainty of what’s going to come.
Mad Fientist: That’s a great lesson. Were you still living with your business partner at that time?
Chad Carson: No. I moved out after a year. I kept the same philosophy financially.
One of my favorite niches in real estate—I’ve written an article on this too—is called house-hacking. I had some articles that I can send to you. But house-hacking basically was a way—I moved out of my business partner’s house. I bought a house, a quadruplex that had four units. I lived in one unit, and then I rented the other three units out. And so I was basically living for +$200 a month by getting $400 a rent for my three tenants. So that’s $1200 coming in. And my mortgage, taxes and insurance were about $1100.
So, I was living positive by using my skills as a real estate investor, and by living in an apartment that kept my overhead super low, even when I went and bought my own property.
That was my progression. In addition to buying houses as an investor as a business, I think house-hacking—or another way of doing it is called “live and flips” where you move into a house, and don’t try to make this your forever home. Make it a home that you’re going to live in for a couple of years, fix it up, turn around and resell it two years later and make a big profit.
In the US (and I think UK and Canada too) have similar laws where, if you live in a property, you can make 100% of your profit tax-free (up to a limit in the US).
And so that’s one way or the other. Whether you house-hack or whether you do live-and-flips, my main recommendation to everybody, whether you get into real estate investing or not, is if you’re early in your career, or if you’re growing your wealth, there’s no reason—you either need to do the house-hack, do a live-and-flip or rent somewhere because those are your three most financially-viable ways to treat your residence.
If you just go and buy the nice pretty house and a pretty neighborhood and pay retail prices for it, it’s costing you a ton of money to do that. One way or the other, you got to figure out a way to reduce your housing expenses.
Across the board, if you read any financial blogger, other people who talk about building wealth and getting financial independence, figuring out the housing expense is such a big deal.
Mad Fientist: Absolutely! Just as you’re talking there, I realized that we actually did a live-and-flip, and I’ve never realized that until right now.
I know Mr. and Mrs. 1500 from 1500Days.com. They’ve built great wealth from doing live-and-flips over the years. But I really didn’t realize that that’s what I did unintentionally right back in—I graduated in 2004, moved over to Scotland since my wife, that’s where she lived (or my girlfriend at the time lived, now wife).
We’re like, “We’re adults now. I guess we have to buy a house.” So, we stupidly got, I think, a 95% mortgage, and then borrowed the $10,000 off of her parents to buy a car that we could use to get to work from our new house, and then covered the rest of the down payment that we couldn’t cover.
And so, that was really stupid. But it ended up working out great because it was a live-and-flip. We did it up every two years. We just did room by room as we lived there. We picked one and did it up, and then we picked another one.
And then luckily, we sold it in 2007 for over 15% more than we bought it for. That was a huge boost to our financial security and put us on this path to financial independence eventually.
I wouldn’t have called it a live-and-flip because I don’t think that was what we intended. But yes, it was two and a half years, so that’s probably a good live-and-flip timeframe.
Chad Carson: Challenge your listeners to put it in the calculator and just think about it. If your first seven years of investing or building money, if you bought and flipped three houses, and you just really, really optimized it, and you make $50,000 per flip, two years, two years, two years, put that in your retirement calculator to figure out how much […] that puts on your plans in terms of retiring early.
It’s unbelievable how if you start compounding that tax-free money, how much that can do for you.
I think you had Mr. and Mrs. 1500 on the show. They’re friends of mine too. That was a big momentum for them, moving forward. They saved a bunch of money and had good savings rates.
The fact that they had these huge chunks of money from real estate, and it was a big factor in being able to do what they want to do it as early as they’ve done, if that’s something you’re inclined to, or if you accidentally do it like you did, either way, it’s something you could at least just do once or twice.
You don’t have to be a lifetime homeowner. But if you want to take advantage of that, that’s one of the best angles on the tax code, to take advantage of a live-and-flip. And then you can rent for the rest of your life if you want to. But you take advantage of that for a few years while you’re willing to do that and able to do it, and then move on to another strategy after that.
Mad Fientist: Absolutely! And yeah, your guest post on my site with all the different tax advantages of real estate is just phenomenal, so I’ll obviously link to that in the show notes of this show as well.
There are just so many different tax advantages to the whole real estate game as well that can lower your costs dramatically and increase the amount you can save.
So, looking back, you’ve learned a ton over the years, I’m sure. If you were starting from scratch, and early retirement, financial independence was your goal, how do you think that would look? What would you do?
Chad Carson: If you […] me down, and I found myself a good job with steady savings, really good, high savings rate (I’ve got all of that to figure out first), I think I would look at the whole financial world.
I would say, number one, I’m going to have some retirement savings, like my 401K, and do all the stuff that Brandon teaches you with the HSA’s and the 401K’s, and all of that stuff first. But that’s one whole chunk of your retirement. And whether you invest in real estate, stocks or index, or whatever, that’s your personal preference.
But then I would look at real estate as a side hustle, as a side business, that you can do. And so you might take a chunk of that savings that you have. And maybe you put a chunk to 401K and do all that, and then you put another chunk into this little business you’re going to start in the side—
And that little business could be—my preference would always be to start off with a live-and-flip or a house-hack if you could. The only downside of it is the fact that they’re a little more uncomfortable with your living arrangement because some people would complain […] living in a quadruplex. There’s “Oh, my God. You’ve got to have to live next to your tenants? That’s awful. I don’t want to live next to my tenants.”
But for me, it was awesome. I became really good friends with my tenants. To this day, I still communicate with some of them.
And so if you could buy a good property and you treat your tenants well, it’s just a non-factor. They might knock on your door on a Saturday to say, “Hey, my toilet is leaking.” I am not handy at all. People need to know that. I don’t fix those stuffs. I make a bunch of lists and I call handymen and contractors who do fix stuff. So, it was never like—
I could be in Ecuador. At one time, my wife and I were traveling to Chile in Patagonia. I remember Skyping on this little laptop I had where one of the tenants called and said, “The hot water is leaking. It’s not working.”
I literally got on Skype for two minutes. I was sitting on the Magellan Strait in this little internet café, looking out over the water, and we were about to go on a tour of a penguin colony. So I made my call to the plumber over Skype, and they went and fixed it. I went off to my tour of the penguin colony after that and went on my way.
I got started on that story because house-hacking seems uncomfortable because you’re living in the property that you’re renting out, but the benefits of that are way beyond that.
It’s not a forever thing. It just might be two or three years of you living in the property, and then you move out. And now, you’ve got a built-in rental property that you can keep for the rest of your life, pay the thing off, and use it to produce income for you forevermore.
I would start off with house-hacking. If you’re in an area that doesn’t have small multi-units that are affordable or if you live in an area that has some single family houses, you found a neighborhood that had a lot of older homes that needed work, that would be where you would do the live-and-flip.
You can do that in one of these older houses where the kitchen is completely dated and the bathrooms are dated. The worse it smells, and the worse the carpet is, the more awful it looks, the better. That’s really what you want. You want the ugly duckling.
And then your job is then—you’re willing to live in the ugly duckling and deal with some saw dust and some sheetrock dust for a couple of years until you turn around and sell it.
I would start with those. But then, you could also get into—I know a lot of people who, if they’re not in the position to do the house-hacking or live-and-flips, you could just buy a rental property on the side.
There’s a lot of thinking about where that location should be. If you’re in California, or if you’re in the UK, in certain locations, the prices might out-pay the rents by a good bit. And so you’ve got to choose a location where it really makes sense to rent the property and actually be able to make some income either to pay for the loan or to pay yourself.
So there’s a whole science of analyzing locations and rent-to-price ratios and that sort of thing. But I think that’s a pretty good progression to the people who wanted to save up their money for a down payment and buy a rental property or two on the side. That’s also a good way to go.
Mad Fientist: That’s fantastic. You mentioned one book, which I’ll link to in the show notes, but you also offer a real estate investing toolkit on your site. I can link to that. I’m assuming that’s free for anyone to get and do something?
Chad Carson: Definitely, yeah. On my site, I have some basic tools on how to analyze niches. If you’re looking at all these different niches of real estate—buying duplexes, or buying single family houses or being a private lender—I have some core information on my site. I have these ideas on how to get started and think about that.
This is so personal. You might hear this stuff I’ve done and say, “That’s crazy. I would never want to buy all those houses.” And I wouldn’t recommend it either. The majority of people are going to have different niches than I have. And you might be on a different part of the country.
So, part of the game of real estate is getting in and trying to find a match between your personality, your financial stage, and what’s a good opportunity in your market.
And so, I think that’s a big part of what I focus on on CoachCarson.com. I just try and break it down to the simple parts of real estate. Don’t try to over-complicate it and try to figure out that little niche that works for you.
It might be rental properties like I’ve been talking about, or for some of you who are a little bit further along in your wealth-building, you might just want to be a private lender.
I don’t know, Brandon, if you’re written anything on this or talked about it with people. I haven’t got into a lot of this. But there are people who do crowd-funding sites where they get into real estate by being just basically a passive investor with somebody else who is the active investor.
That’s something you definitely got to do your due diligence on. I don’t recommend that for beginners because I think the problem with a lot of people that get into that is when you’re a private investor, when you’re putting your money and you’re depending on some other active person to do it, you need to do as much due diligence as that active investor does to make sure that they know what they’re doing, that the property is good. And so, you need to be able to be more involved than they make it out to be sometimes.
I think it would be better to start off by owning one little rental property by yourself to learn the whole business and then get into private lending down the road.
Once you’re a little bit more savvy, once you figured that out a little bit more, because when you’re loaning $100,000 to somebody, or $200,000, that money can disappear. They’re using leverage. There’s a lot more risk that you’re taking.
That’s why it’s a little bit more of an advanced strategy to understand what it is you’re getting into. There are a lot of opportunities there, but that’s the next level of control. You have a lot less control than you would have in this one little rental property on the side where you have 100% control over that.
Mad Fientist: Yes, definitely. That sort of stuff always never sounded appealing to me. That always scared me. So yes, I’m glad to hear you say that.
I could talk to you about this stuff all day, but we haven’t even talked about your move to Ecuador yet and also the fact that you’re not renting.
So, you own all these properties, but your own personal residence will be a rental, presumably, yeah?
Chad Carson: Yes. Part of our preparation to leave for Ecuador last year was to get our primary residence rented out. We’re kind of up in the air. We’re probably leaning—because we liked the elementary school where we are. But we can move back into that house afterwards if it made sense. But we’re also open to the fact that we can just own 100% of our properties as investments, and then spend a lot of time just renting properties.
This year in Ecuador, there’s no way I want to buy anything anywhere in a foreign country. I’m totally a local investor. I like to look at it and understand the market. I can’t understand enough here—the political system, everything else—about buying. Some people do, but it’s just not my thing.
And so I’m totally okay. It makes sense to rent a property, and then own that rental property that you live, and then own a bunch of investments. There is no problem with that at all, in my mind.
Mad Fientist: That’s really cool. I had Millennial Revolution on, and there was a lot of backlash to their interview just because they’re saying don’t buy a house to live in. And a lot of the comments were more focused on investing. In my mind, I see two very different things. Do you agree?
Chad Carson: Absolutely!
Mad Fientist: Buying a house to live in versus buying an investment property to rent is a whole other world.
Chad Carson: Exactly! You really have to separate those two things in your mind. The only way they cross over is the live-and-flip. If you live in a flip, or you have a house-hack, that’s the hybrid world between investing and residence. I totally think those are something to look at.
But otherwise, most of the time, a residence is not as good an investment as you could do just going out and buying properties on your own.
One of the biggest benefits of real estate is it produces income. The long-term appreciation rate for a real estate as a whole is 3%. It keeps up with inflation. But the big horsepower is that it produces really good income if you buy it right.
And so when you live in a house, yes, if you own it free and clear, you might not have any mortgage payment. But you also have the opportunity cost of that huge amount of money you used to pay off your house that you live in. You could have invested that in another property and made 6%, 8%, 10% in income instead of having that mortgage payment.
In my own mind, I separate those two out. Real estate as an investment, it’s clearly got some really good advantages. You can make a lot of money with that.
Real estate as a residence, I could see at some point where you say, “I’ve got enough money. I’m not that worried about growth. I like to live in this neighborhood. I like doing my own house.” As long as you’re making that decision with an open eye, and you say, “I guess living there is not the best investment,” that’s fine.
When you make enough money, you can start making those decisions. But the thing that you need to know about—and if you don’t mind linking this article in the show notes too, I wrote an article showing the opportunity cost of living in a— The title of the article is How to Get Rich by Living in Ugly Houses and Embarrassing Old Cars. It just went over the math of showing— Particularly, in your first 10 years, if you make mistakes of buying emotionally on your residence as opposed to buying in a very calculated manner by making your residence a house-hack or a live-and-flip or just renting and investing that somewhere else, the magnitude of that mistake is huge 20/30 years from now.
It’s like $700,000, a million dollar difference for somebody 20/30 years later who made the choice to make their first home a nice home, a great neighborhood and being in the top high school as opposed to making a decision to treat your home like an investment or just rent. It’s a major, major difference.
And so if there’s one message I could leave people with whether they ever invest in real estate or not is when you’re first starting in your early years of your wealth-building, make the most of your residential decision […]
If you can make that decision right, if you can be boring with the rest of your investments, you’ll still do pretty well over the long run if you just take care of that part alone.
Mad Fientist: That’s fantastic! That’s exactly what I’m looking for, so I’ll definitely link to that in the show notes. And then hopefully, that will make people understand where Millennial Revolution was coming from when Christy and Bryce were both saying similar things.
I just didn’t have the link to give anyone to explain it, so that’s perfect. I appreciate that.
Chad Carson: I loved that interview because I like how they took it a step further and said, “We don’t really want to own a car. We’re just using car-sharing.” I was like, “Wow! That’s really incredible.” So I thought that was so cool.
Mad Fientist: Good! So, briefly, before we end the interview, I’d love to just hear more about why you’re in Ecuador and how that came about.
Chad Carson: My wife and I, on our very, very first date practically, we talked about we both love traveling and studying abroad. And I had some good studying abroad experiences in Germany, learning German in high school and college.
She’s a little bit more ambitious and brave with her study abroad experiences than I was. She took off to Guatemala by herself and wandered around for two or three months. She’s been to Spain, El Salvador. She’s been all over in the Spanish-speaking world. And so it’s really exciting to both of us.
Pre-kids, we took some trips, back-packing trips to South America and Spain together, and just really loved it. We took some mini-retirements for four or five months.
Once we had kids, we put it on hold for a little while. We have a five-year-old and a three-year-old, so we’ve taken some smaller trips. But we really had that itch to get back out there and do something a little bit more ambitious.
There’s a book I really love by Rolf Potts called Vagabonding. Some people might appreciate that book. It’s about long-term travel, but not travel in terms of just like going and seeing some sights, and checking them off your list and doing everything really fast. But more like really slow, enriching way.
You might not make it past one city or another country. You just go to one place, and you’re really going to soak it in and travel slowly.
That appealed to us, to my wife and I. And so that’s what this trip has been about for us. We want our kids to have that experience of, number one, learning a foreign language. We think that’s a pretty important thing in today’s world, and it just opens your mind to another way of thinking when you learn how to use another language.
But also, just the experience of us coming together as a family and just the crap we’ve got to go through to get out of our house. We just had stuff in the basement. For six months, my wife and I were doing yard sales and selling stuff.
It was such an eye-opening experience to learn how embedded we were in a good way and a bad way. We were so invested in our community. We had a lot of friends and had a lot of things that we were contributing to which was awesome.
But then we also had these things like, “What is this baggage we have?”—literally like the stuff, but then also these activities we were doing that really weren’t that helpful.
And so by us detaching ourselves from our normal lives just brought all of those things to light and to show us, “Wow! Do we really need that? Do we really need that?”
That Vagabonding book is a lot about that. Travel is a mindfulness exercise where you learn about yourself and you learn about other cultures, of course, and you’re immersing yourself and opening your mind to different places.
And so Ecuador, we didn’t have our sights on Ecuador originally. We were looking at Argentina because we had been there on a big trip and really loved Argentina and the people there.
And I think we were just looking at the cost of living and the fact that the flights there are really expensive this year and the housing. And so, we started looking around other places,
I think we saw the statistics in some article that the happiest countries in the world—Ecuador is one of the happiest countries in the world by whatever this rating was. This seemed to be a really interesting place for us that had different culture.
I was a biology major in college, so I really enjoyed the different rainforests and learning about that and the Galapagos Islands, part of Ecuador.
So, it just had a lot of personal stuff for us that was interesting in addition to the fact that we were going to live in a place that our girls can learn Spanish, and go to school somewhere safe and interesting.
Mad Fientist: That’s really cool.
Chad Carson: That’s what it came down to.
Mad Fientist: I’m glad you picked there because I hopefully talked you into joining us for the Ecuador Chautauqua in October. So I’ll hopefully see you there. I’d love to chat more in person and have a few beers.
Chad Carson: Exactly! I’m sold on it. I think it’s an easy flight, like a $75 flight to get from here to where Chautauqua is. If I can get in, I’ll be there by all means.
Mad Fientist: That would be great. This has just been fantastic. I really appreciate you taking the time. And I appreciate the guest post. I’m so excited about that guest post.
I’ve been wanting to write that for years ever since I started writing about tax minimization and tax optimization. I just didn’t have the knowledge to do it. I’m so thankful that you came along and offered to do it for me, so I appreciate that.
Chad Carson: I loved it. It was fun. The information on your site, I recommend it so many times to other people, and I said, “Look at this! Look at these strategies.” Your HSA article, I think people get sick of me, hearing about it. “You’ve got to read this Mad Fientist guy.”
“The Mad who? What is that?”
“Hey, you’ve got to read this. Read it!”
The fact that I got to share and write an article for you and help you out is awesome. I was happy to do it.
Mad Fientist: I appreciate it. Thanks for those kinds words.
So, I usually end all my interviews with asking if you had one piece of advice for someone who is hoping to achieve financial independence, what would it be?
Chad Carson: It sounds boring, but I just think that you’ve got to keep it simple. I think keep it simple in a couple of different ways, just the personal finance stuff of just increasing your savings rate and keeping your life simple, that’s really what it all comes down to. Whether you invest in stocks, index funds, or real estate, there’s really no changing the basic formula that you have to save money and you’ve got to keep your expenses low.
So, that simplicity is really important. But then, also the simplicity of your investments.
If you’re listening to me talking about my portfolio, I might sound a little ironic, buying 50 properties here and there. But I think part of the lesson we took from that whole experience was that we don’t need to be crazy ambitious, and we don’t need to be doing a bunch of deals, and owning a bunch of properties to accomplish all of our goals. You can be really, really simple.
I think in real estate if you chose to go that route, all you have to do is work it backwards from if you need $5000 a month to pay for your expenses, work it out, how many properties do you need to own free and clear to pay for $5000?
It’s super simple. For many people, it’s like, “I need 5 properties or I need 10 properties.” And so then that’s a really simple plan. Go buy five properties, save your money, pay them off, you’re done.
There are many sophisticated analyses in the financial world. And if you get overwhelmed by those, real estate is super simple. You don’t have to be a rocket scientist to do it. Even if you are a rocket scientist, maybe that might even be a handicap for you getting into real estate.
You just need to keep it simple, get a simple plan, pay off the properties, and then live off the income. It’s really as simple as that.
So, that would be my recommendation… keep it simple.
Mad Fientist: That is fantastic. Most things in life are better when they’re simple.
I’m obviously going to link to all the stuff we talked about in the show notes, including the Vagabonding book that you mentioned. Hopefully, you can send me over some of the other links from your site that you wanted to slide in there because I know you have a lot of great stuff there that probably covers a lot of the things that we talked about in even more details.
I’ll link to that. But how else can people get in touch with you?
Chad Carson: My home online is CoachCarson.com. You can check me out there. I think I have my links to my social media profiles on there as well. But that’s the main place you can click and contact me if you want to e-mail me from that site. I’m chad@CoachCarson.com. That’s my e-mail. It’s pretty simple.
Yes, if anybody who wants to say hello to me and ask a question, I’m happy to talk to you. I’d love to hear from you.
Mad Fientist: Awesome, Chad! Thank you so much again. Have a great time getting settled there in Cuenca. And hopefully, I’ll see you down in Ecuador soon.
Chad Carson: Sounds good. I really appreciate you having me on.
Mad Fientist: Thanks, Chad. Bye.
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The Incredible Tax Benefits of Real Estate Investing
Professional real estate investor Chad Carson breaks down the 10 best tax benefits of real estate and explains how they can help you retire earlier!